The Federal Government of Nigeria aims to raise the nation’s revenue-to-GDP ratio to 30 percent within the next two to three years as part of a comprehensive plan to improve monetary Regulation and boost economic growth. While speaking during the Nigerian Banking Sector Report by Afrinvest West Africa in Abuja, Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, outlined government plans to restructure the tax system, moving the tax load away from lower-income individuals and smaller businesses and towards sectors like financial and capital markets.
In the 2024 Nigerian Banking Sector Report, it was noted that delayed policy implementation and external economic factors are impeding progress towards achieving the government’s stated objective of a $1 trillion Economy by 2030. Significant progress has not yet been made from the Subsidies removal policies and initiatives to stabilizing the business environment, among other key reforms. During a panel discussion, Oyedele said that raising Nigeria’s revenue-to-GDP ratio to 30% in the next two to three years is totally possible with the right measures put in place.
Challenges like corruption, inefficiencies should be tackled.
Oyedele emphasized that in order to increase revenue, stronger fiscal policies and asset management by the government are essential. He pointed out that a lot of government-owned businesses, like the Nigerian National Petroleum Company Limited (NNPCL), are performing poorly and advised adopting international best practices. In his description of the current health of the economy, he pointed out that the whole federal budget is less than $40 billion, in addition to supplemental funds for each of the 36 states and 774 local governments. In sharp contrast to nations like South Africa, which have a $130 billion budget, the Revenue is considerably lower.
He further pointed out the need to tackle challenges like corruption, unnecessary spending, and inefficiencies to increase Economic Growth and revenue. There was emphasis on the lessons to be learnt from nations like South Africa and Kenya, who have successfully expanded their tax bases and enforced compliance. According to Oyedele, Kenya generated over four times as much in personal Income Tax despite having a lower population than Nigeria did from all taxes combined and South Africa, earned more in personal income tax overall than Nigeria.
Tax reforms have been enacted to boost revenue.
Earlier in January, the Federal Inland income Service (FIS) aims to raise tax income generation by 57% to ₦19.4 trillion ($20.3 billion) in 2024. The government has enacted and intends to enact a number of tax reforms in 2024, which are anticipated to increase revenue. Nigeria is attempting to diversify its revenue streams away from oil, which provides 90% of its foreign exchange profits and around half of its government earnings. With a tax-to-GDP ratio of about 6%, the nation has one of the lowest in the world when compared to the average of 15% for sub-Saharan Africa.
As of 2023, the revenue-to-GDP ratio was approximately 8 percent. Nigeria must overcome several obstacles to raise the ratio, including widespread tax evasion, a convoluted tax code, and inadequate accountability for the use of tax funds. Nigeria, meanwhile, is working nonstop to dramatically raise its revenue-to-GDP ratio through a number of current reforms and calculated measures. This entails taking steps to prevent theft and smuggling, enhancing the effectiveness of current regulations, and luring in more foreign direct Investment (FDI).
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With the complex relation between monetary and fiscal policies, Nigeria faces a difficult task in balancing revenue drive with Economic Stability in the quest of fiscal sustainability. Whereas, a balanced approach to income creation is necessary to prevent an economic downturn and inflationary pressures, even though the Inflation outlook is cautious given the global uncertainties. In addition to considering asset sales and raising taxes, long-term solutions such as expanding the tax base, boosting productivity, and providing incentives are to draw in foreign direct investment are required.